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Putin says Russia and Saudi Arabia agree to extend OPEC production-cut deal

After talks with Saudi Crown Prince Mohammed bin Salman, Putin says deal will be extended in its current form with same volumes
Russia's President Vladimir Putin speaks to Saudi Arabia's crown prince during meeting on sidelines of G20 Summit in Osaka, Japan, on Saturday (AFP)

Russia agreed with Saudi Arabia to extend a deal with OPEC on reducing oil output, Russian President Vladimir Putin said, as oil prices come under pressure from rising US supplies and a slowing global economy.

Putin, after talks with Saudi Crown Prince Mohammed bin Salman, told a news conference that the deal - which is due to expire on Sunday - would be extended in its current form and with the same volumes, Reuters said.

"We will extend this deal, Russia and Saudi Arabia. For how long? We will think about that. For six or nine months. It is possible that it could be up to nine months," Putin told reporters after a G20 summit in Osaka, Japan, AFP said.

The Organization of Petroleum Exporting Countries, Russia and other producers, an alliance known as OPEC+, will meet on 1-2 July in Vienna to discuss the deal that involves curbing oil output by 1.2 million barrels per day (bpd).

The meeting comes against a background of ample global crude supplies, according to both the cartel and the International Energy Agency (IEA). The Paris-based IEA watchdog has cut its forecast for 2019 oil demand-growth for a second straight month and has also trimmed its second-quarter forecast.

“The Saudi-Russia deal, combined with a positive outcome from the US-China trade talks at the G-20, should allow oil prices to move higher,” Amrita Sen, chief oil analyst at consultants Energy Aspects in London, told Bloomberg News.

The United States, the world's biggest oil producer ahead of Russia and Saudi Arabia, is not a participant in the accord.

A nine-month extension would mean the deal runs out in March 2020. Russia's consent means the OPEC+ group may have a smooth meeting if OPEC's third-largest producer Iran also endorses the arrangement.

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New US sanctions on Iran have reduced its exports to a trickle. Iran has denounced the sanctions as illegal.

Kirill Dmitriev, the chief executive of Russian Direct Investment Fund, who helped design the OPEC-Russia deal, said the pact in place since 2017 has already lifted Russian budget revenue by more than 7 trillion roubles ($110bn).

"The strategic partnership within OPEC+ has led to the stabilisation of oil markets and allows both to reduce and increase production, depending on market-demand conditions, which contributes to the predictability and growth of investments in the industry," Dmitriev said.

Benchmark Brent has climbed more than 25 percent since the start of the 2019. But prices may stall as a slowing global economy squeezes demand and US crude floods the market, a Reuters poll of analysts found.

Saudi Energy Minister Khalid al-Falih said the new deal would help reduce global oil stocks, balance the market and spur investments in future energy supplies.

"The agreement confirms that the Saudi-Russian partnership paved the way to guarantee the interest of producers and consumers and the continued growth of the global economy," Falih tweeted.

The fact that Russia and Saudi Arabia effectively announced the deal before OPEC began to meet will likely anger smaller members of the group, who may feel sidelined.

"Who needs an OPEC meeting?", one of the delegates said after learning about the headlines from the Russia-Saudi meeting.

Some delegates said Iran might still put up a fight at the meeting.

Russia's Energy Minister Alexander Novak said he believed most OPEC members including Iran had already expressed support to extend the output-cutting deal.

He said it may be wise to extend the agreement by nine rather than six months to avoid raising output during weak seasonal demand.

"It might make sense to keep the deal in place during the winter period," he told reporters.